New anti-avoidance tax threatens the innocent

Published on 22 November 2004

An obscure tax measure to be introduced next April could impose an annual tax charge on people living in their own homes who have done no more than make ordinary financial arrangements within their own families. LITRG wants the rules changed before next April so that vulnerable people on low incomes do not have to choose between paying the new tax or incurring fees to prove that they are not caught.

A year ago the Government proposed the introduction of an annual income tax charge to stop the better-off arranging their affairs to avoid inheritance tax. They said that their intention was not to catch those on low incomes, or those innocent of wanting to avoid their taxes, but merely to counteract ?artificial structures to avoid the existing rules?.

LITRG warned the Government then that the way in which they proposed to do so was likely to catch innocent people on low incomes as well as the wealthy tax avoiders.

Various Ministers have said it is not their intention to make life difficult for those on low incomes. Yet the latest draft law does not exclude the possibility that thousands of the most vulnerable and disadvantaged people in the country will be asked to prove they are not caught in the net. To illustrate this, LITRG have identified several instances of normal family arrangements which may be caught by the legislation as presently drafted. And we believe that there may be many more such cases.

This will mean enormous worry for those affected, having to try and understand incomprehensible law and potentially paying out fees to valuers to prove that they are not caught.

LITRG have written again to the Revenue, asking for a provision to be inserted into the legislation, even at this late stage, stipulating that it will only apply where a tax avoidance motive can be shown. We believe that no-one on a low income ought to be disadvantaged by these new rules. We hope this time that someone will listen, before it is too late.

You can see the full text of the LITRG response by using the link below.